As of: February 4, 2024, 7:03 p.m
Comments
Press
Split
The Golar Tundra, a ship used as a floating LNG import terminal, is moored in the port of Piombino, Italy, in 2023.
© Alessia Pierdomenico/Bloomberg
Europe is breaking away from its dependence on Russian natural gas and relying on US LNG.
But this decision entails new, unforeseeable risks.
Europe, long reliant on Russian natural gas, has almost completely freed itself from dependence on the Kremlin in less than two years.
The preferred replacement - gas from the US - is widely seen as plentiful, politically acceptable and less likely to stall than pipelines from Siberia.
But it is also becoming riskier every day.
On Friday, the White House announced the polarizing decision to halt approval of new liquefied natural gas (LNG) export permits amid opposition from climate-minded voters.
The halt, which does not affect facilities already under construction or in operation, threatens to delay or even derail some of the massive projects slated to come to market toward the end of the decade and beyond.
“US LNG remains the cornerstone of Europe’s supply diversification strategy,” said Leslie Palti-Guzman, head of research and market research at SynMax.
Biden's decision is a real signal “of solidarity and the medium to long-term reliability of supply.
This is particularly important at a time when deliveries from Russia and other shippers are unpredictable.
Booming American supplies now account for about half of the region's LNG imports
Even before the licensing freeze shocked buyers around the world, Europe's rapidly growing dependence on U.S. LNG might have given Brussels pause.
In a very short window of time, the US has captured a significant share of European gas supplies, dwarfing the remaining Russian supplies.
Booming American supplies now account for about half of the region's LNG imports, and that share is widely expected to rise further.
If gas delivered via pipelines is also taken into account, the USA is the bloc's second-largest gas supplier after its neighbor Norway - a major success for the North American country, which only began exporting its shale gas in 2016.
Read The Washington Post for free for four weeks
Your quality ticket from washingtonpost.com: Get exclusive research and 200+ stories free for four weeks.
Although the United States is a key G-7 ally with unrivaled economic clout and relative political stability, overdependence on even a friendly country carries risks.
Europe's decision to swap Russian gas for American LNG rather than rely more heavily on renewable energy means its energy security remains dependent on factors well beyond its control, such as:
B. the Atlantic hurricane season or political games in Washington, DC.
To source the fuel crucial to heating Europe's homes, generating electricity and powering industry, energy traders now have to factor in events thousands of miles away.
Failures at Gulf Coast facilities or sudden cold snaps from Houston to Guangzhou can redraw the map for profitable business overnight.
My news
Pension in the event of occupational disability only possible for two years read
Loss of sales in the millions – auto supplier is insolvent
Popular confectionery retailer insolvent: 300 branches and 1200 employees affected by bankruptcyread
110 euros more for all pensioners: pension expert describes trick as “nonsense”.
“Broken man”: Confidants give insight into René Benko's inner life after Signa's bankruptcy
Restrictions on pensions at 63: “Deduction-free pension” only for one group
“Europe's dependence on US LNG will only increase if more Russian gas does not appear again and the Qataris do not engage in a price war for market share.
The reward for Europe is a variety of U.S. suppliers,” said Ira Joseph, senior research associate at the Center on Global Energy Policy at Columbia University.
“The risk is a fundamental change in US policy in the future.
Europe's decreasing dependence on Russian gas began even before Putin's invasion of Ukraine
In short, by swapping fossil fuel suppliers, Europe has traded one potential handicap for another, leaving its energy system vulnerable and fragile.
Europe's declining dependence on Russian gas began even before Vladimir Putin's invasion of Ukraine in 2022. Relations between the two world powers were strained in 2014 by Russia's annexation of Crimea.
The following year, tensions escalated further when state gas giant Gazprom PJSC was accused by the EU competition authority of abusing its market power.
An LNG tanker has docked at a terminal in Corpus Christi, Texas.
© Mark Felix/Bloomberg
Months before the recent invasion of Ukraine, Russia cut pipeline shipments and stopped offering spot volumes to Europe.
These tactical moves, according to some, served to drive up prices and speed up approval of the controversial - and now ailing - Nord Stream 2 pipeline.
Two weeks after Russian forces invaded Ukraine in February 2022, which triggered panic buying of all LNG cargoes available on the global market, the EU presented a final plan to replace supplies from its largest supplier.
US LNG was the clear choice to fill the gap.
The relative geographic proximity meant savings for traders when sending U.S. cargoes to Europe rather than Asia;
the wealthy region also had more purchasing power to obtain the expensive supplies.
Another advantage for U.S. gas: Contracts are almost always written in such a way that the destinations are flexible, meaning traders can reroute the tankers if necessary if the price is right.
You can even cancel deliveries if demand suddenly drops.
The EU's LNG imports rose 60% in 2022, and abundant LNG from Europe's long-time political ally was by far the biggest contributor.
"I've traveled all over the world, especially in Europe, and the message I always hear is: 'Here's to America's LNG producers,'" U.S. Assistant Secretary of State for Energy Resources Geoffrey Pyatt said in October the North American Gas Forum in Washington.
And what if Joe Biden is re-elected?
That appreciation may be fading with President Joe Biden's latest move.
After Russia's invasion of Ukraine, its government pledged to the EU to quickly review applications for new export capacity, Fred Hutchison, president and chief executive of LNG Allies, said on Friday.
“Today’s announcement is not consistent with that commitment.”
It's too early to know whether the U.S. review will force companies to permanently withdraw their plans.
If Biden is re-elected, he could very well allow the process to continue once he is in office for another four years.
“This could be a pause for political purposes to appease Biden's base ahead of the general election.
Or it could be a prolonged permitting freeze that limits the chances of these terminals being approved for the longer term,” said David Seduski, gas analyst at Energy Aspects.
If a Republican like Donald Trump wins the presidency instead, the permit freeze “will almost certainly be lifted” in early 2025, he said.
But even a Trump victory would not be a sure sign that the country's so-called "freedom molecules" will continue to flow to Europe.
During his time in the White House, Trump has shown that he is willing to use trade war tactics to enforce his policies, particularly against China, and there is no guarantee that the EU would not find itself in the crosshairs.
Even if the approval delay is just a short-term hiccup, it is still a deafening wake-up call to European buyers that U.S. gas cannot escape U.S. politics.
However, others see potential challenges ahead
The European Commission is not concerned about growing dependence on U.S. LNG because the political risks are not as high as those with Russia, said a senior EU official who was not authorized to speak publicly.
However, others see potential challenges ahead.
Increasing reliance on U.S. gas poses a “concentration risk” for the industry, Jonty Shepard, vice president of global LNG trading and origination at BP Plc, said at an industry conference in Athens in late 2023.
“The entire industry will have to learn to deal with it.
There are other reasons why Europe's appetite for US LNG unsettles some:
-It gives the US outsized geopolitical influence.
At the height of the crisis, French Finance Minister Bruno Le Maire accused LNG exporters of using Russia's war against Ukraine to promote "American economic dominance and a weakening of Europe" and called for a more balanced economic partnership with the United States.
Western Europe barely heeded this warning, importing more LNG from the US last year than from the other eight largest suppliers combined.
The more dependent Europe is on the United States, the harder it will be to resolve differences on everything from prices to politics.
“Europe risks becoming dependent on a single supplier and ultimately at the mercy of the prices they set,” said Ogan Kose, managing director of consultancy Accenture.
Significant impact on the climate
-There is a risk that Europe's energy bills will skyrocket.
Because most European LNG shipments are made through the volatile spot market, buyers there are more exposed to fluctuations in global supply than Asian buyers, who mainly source LNG under long-term contracts linked to oil prices, said Massimo Di Odoardo , vice president of gas and LNG research at Wood Mackenzie.
LNG supplies can easily be diverted to the highest bidder, so a larger-than-expected surge in Chinese demand or a failure of Japan's nuclear power plants could result in more American gas reaching Asia and Europe losing out.
As additional US capacity comes onto the market, prices will fall - eventually.
-It means that events 5,000 miles away will affect the EU's energy supply.
When natural gas - once transported only via pipelines - began crisscrossing the world in tankers, what was once a localized market became a global commodity.
This brings with it a whole range of new, unpredictable factors.
Any disruption at U.S. LNG facilities an ocean away - from a broken valve to thick fog - can affect deliveries.
And as climate change increases the intensity of storms along the U.S. coast, disruptions will only become more frequent.
In 2020, Cameron LNG in Hackberry, Louisiana was shut down for weeks following a destructive hurricane;
In 2022, a month-long shutdown of Freeport LNG due to an explosion caused prices for European gas purchases to skyrocket.
Of course, the global nature of LNG also brings advantages.
“If there is a problem with the LNG supplier, you can get LNG from anywhere in the world,” said Rob Butler, a partner at law firm Baker Botts LLP, who deals with energy transactions.
-It has significant impacts on the climate.
Although gas emits less carbon dioxide when burned than coal, some argue that methane leaks in global LNG supply chains could worsen the climate.
Still, U.S. LNG could emit less methane than some pipeline gas routes to Europe, according to Christopher Goncalves, managing director of energy and climate at the Berkeley Research Group in Washington.
-There is a risk of delaying the introduction of greener energy solutions.
In addition to buying more LNG, the EU has also unveiled ambitious plans in 2022 to increase its investment in renewable energy, develop green hydrogen and biomethane projects, and strengthen energy conservation measures as part of its planned transition away from Russian gas.
Almost two years later, it appears that dependence on LPG has increased and gas consumption has - to some extent - decreased.
Hydrogen projects remain limited and the expansion of renewable energy is hampered by the problems of the offshore wind industry.
Current actions by EU member states are not enough to reduce emissions by the targeted 55% by 2030, and the availability of US LNG will not help accelerate this difficult transition.
The German chemical industry is in a severe recession
To be fair, Europe is not sitting idle.
It has begun signing some longer-term contracts to secure LNG supplies, including contracts with Qatar's state-owned company that extend to 2052.
Mozambique, Nigeria, Azerbaijan and Norway are also targeting the lucrative European gas market and are helping to diversify European supplies.
But experts warn that Europe remains far too dependent on American gas, and European companies are starting to feel the noticeable impact.
The German chemical industry, for example, which had sales of around 230 billion euros (250 billion euros) last year, is in a deep recession, triggered in part by the loss of cheap Russian gas, which is a key raw material for fertilizers and a is a source of energy for heavy industry.
“What the European chemical industry pays for gas is almost three to four times the price the U.S. buyer pays,” said Accenture’s Kose, comparing the price of European spot purchases to U.S. futures prices.
Even as gas prices have fallen off record highs, German industrial companies have shed jobs and instead invested in manufacturing facilities in the United States, painting a bleak picture for Europe's largest economy.
“When cheap Russian gas came to Europe, it made sense to keep a chemical plant close to the source of demand because it was profitable,” Kose said.
Now that LNG imports are more expensive, it makes more sense to move these facilities to cheap natural gas sources.”
By Anna Shiryaevskaya, Ruth Liao and Stephen Stapczynski with support from Stefan Nicola, John Ainger and Aaron Clark.
We are currently testing machine translations. This article was automatically translated from English into German.
This article was first published in English on January 29, 2024 at the “Washingtonpost.com” - as part of a cooperation, it is now also available in translation to readers of the IPPEN.MEDIA portals.